Supreme Court New South Wales

• Medium Neutral Citation: B v U [2012] NSWSC 1416
• Hearing dates: 19 November 2012
• Decision date: 23 November 2012
• Jurisdiction: Equity Division - Expedition List
• Before: Pembroke J

Decision

See paragraphs [29]-[32]

• Catchwords: REAL PROPERTY - Conveyancing Act 1919, s37A - avoidance of alienation of property in favour of ex-wife effected pursuant to consent orders of the Family Court of Australia; REAL PROPERTY - Conveyancing Act 1919, s 37A(1) - "creditors" - includes future creditors and impending liabilities; REAL PROPERTY - Conveyancing Act 1919, s 37A(3) - onus of proof of defence of purchaser for value without notice
• Legislation Cited: Conveyancing Act 1919; De Facto Relationships Act 1984
• Cases Cited: Barton v Deputy Commissioner of Taxation [1974] HCA 20; (1974) 131 CLR 370; Freeman v Pope (1870) 5 Ch App 538; Green v Schneller [2002] NSWSC 671; Hardie v Hanson [1960] HCA 8; (1960) 105 CLR 451; Langdon v Gruber [2001] NSWSC 276; Noakes v Harvy Holmes & Son [1979] FCA 40; 26 ALR 297; P T Garuda Indonesia Limited v Grellman (1992) 35 FCR 515; Silvera v Savic (1999) 46 NSWLR 124; SS Pharmaceuticals v Qantas [1991] 1 Lloyd's Rep 289; Wentworth v Rogers [2004] NSWCA 430
• Category: Principal judgment
• Parties: Ms B - plaintiff; Mr U - first defendant; Mrs U - second defendant; Ms A - third defendant
• Representation: Counsel: C A Webster SC - for the plaintiff; No appearance - for the first defendant; D E Blackah - for the second defendant; J Sheller and S Clemmett - for the third defendant; Solicitors: C & M Lawyers - for the plaintiff; No appearance - for the first defendant; Calabrese Lawyers - for the second defendant; Greg Walsh & Co - for the third defendant
• File Number(s): 2012/200196

Judgment

Introduction

1 The plaintiff is a victim of sexual abuse by the first defendant. She has obtained a judgment against him for $107,500 plus costs. That judgment will be worthless to her unless she is entitled to orders setting aside at least one of two property transactions undertaken by him. The beneficiaries of those transactions were the first defendant's former wife (the second defendant) and another victim of his sexual abuse (the third defendant). Unless set aside, the effect of those transactions is to leave the first defendant without sufficient assets to meet the plaintiff's judgment.

The Property Transfers

2 The transactions took place in accordance with consent orders made by the Family Court of Australia on 21 March 2012. The application pursuant to which those orders were made was filed on 24 February 2012. Two properties were involved, both jointly owned by the first and second defendant. The effect of the orders was that a property at Gerroa was to be sold and the net proceeds of sale paid to the first defendant - after the discharge of the mortgage on the property and the satisfaction of other liabilities associated with it. And a property at Concord was to go entirely to the second defendant. The transfer of the first defendant's half interest in the Concord property to the second defendant occurred on 21 March 2012, following the making of the orders in the Family Court on that date.

3 The evident practical purpose of the consent orders in the Family Court was twofold. The first objective was to enable the second defendant to own and continue to live in the Concord property with her two children. The second objective was to provide funds with which the first defendant could satisfy a claim for damages by the third defendant arising from sexual assaults committed by him against her between 1993 and 1995.

Third Defendant's Damages Claim

4 The third defendant's damages claim against the first defendant was commenced in this court on 23 November 2011. There was no defence. Indeed, the first defendant had already pleaded guilty on 7 October 2011 to criminal charges arising from the same conduct that was the basis of the civil claim for damages. On 28 February 2012, he consented to orders, including default judgment, in the third defendant's civil proceedings. The orders were filed on 1 March 2012. The effect of the agreement embodied in the orders was that the totality of the net proceeds from the sale of the property at Gerroa, after certain specified expenses, was to be paid by the first defendant to the third defendant in satisfaction of her damages claim.

5 The orders provided as follows:

Orders

1 That there be Judgment for the Plaintiff as to liability.

2 That the Defendant pay the Plaintiff damages, such damages to be the sum of the net proceeds of the sale of the Gerroa property after the following sums have been deducted there from:

2.1 The Gerroa mortgage;

2.2 The loan to the brother;

2.3 The legal fees owing to Walker, Kissane & Plummer Solicitors;

2.4 Reimbursement of expenses;

2.5T The balance to the Plaintiff.

3 The Defendant consents to a Caveat being lodged by the Plaintiff in respect of the title to the Gerroa property whereby the Plaintiff's interest pursuant to these Orders will be specifically noted as Caveator.

Further Notation

4 It is further noted that the Defendant has entered into Consent Orders with Margaret Joy Urch pursuant to the provisions of the Family Law Act 1975 and a copy of the said Consent Orders which relates, inter alia, to the Gerroa property, is annexed hereto and initialled by the parties.

The Plaintiff's Claim

6 The plaintiff was another victim of the first defendant's sexual abuse. Her complaints, as well as those of the third defendant, constituted the basis on which the first defendant was charged with, and pleaded guilty on 7 October 2011 to, the criminal offences. The plaintiff was a little slower than the third defendant to commence a civil claim for damages against the first defendant. But nevertheless she did so on 22 February 2012 in the District Court of New South Wales. Her statement of claim was served on the first defendant on 1 March 2012 and default judgment was obtained on 22 June 2012.

7 As will now be clear, by the time the plaintiff obtained her judgment on 22 June 2012, the first defendant had already transferred his half interest in the Concord property to the second defendant and the third defendant had already become entitled to the net proceeds of sale of the property at Gerroa. There was nothing left for the plaintiff. Whether or not there will be any assets of the first defendant against which the plaintiff can execute her judgment for $107,500 depends on whether Section 37A of the Conveyancing Act 1919 has the effect, in the circumstances of this case, of avoiding either or both of the alienations of property in favour of the second and third defendants. There was no issue that the transactions that were effected pursuant to the consent orders of the Family Court were "alienations of property" for the purpose of Section 37A.

8 Section 37A provides as follows:

37A (1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

(2) This section does not affect the law of bankruptcy for the time being in force.

(3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice to the intent to defraud creditors.

9 The first defendant did not appear and did not give evidence. His non-appearance, coupled with certain uncontroversial facts including those referred to in paragraphs [16]-[18] below, made the inference of his intent to defraud creditors within the meaning of Section 37A(1) easier to draw. Where an inference is open and the defendant elects not to give evidence "the court is entitled to be bold": SS Pharmaceuticals v Qantas [1991] 1 Lloyd's Rep 289 at 293 (Gleeson CJ and Handley J). That proposition may not necessarily have full force in every case, especially where, as here, the first defendant is penurious, in jail and without any personal interest in the outcome of the proceedings, other than possibly some sense of duty to his former wife and her children. In such a case, there may be a rational explanation for the failure to appear and give evidence which is not necessarily consistent with acceptance of the validity of the claim. In this case however, it does not matter as the facts are clear.

10 The real issue for determination is whether each of the second and third defendants was a "purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors" within the meaning of Section 37A(3). The position differs as between each of them. Before dealing with their respective positions, I should make some observations on the onus of proof.

Onus of Proof

11 The issue as to where the onus of proof lies in connection with the defence of bona fide purchaser for value without notice under Section 37A(3) is sometimes contentious. The second and third defendants seemed confused about this issue because both purported to prove they were bona fide purchasers without notice but neither pleaded reliance on Section 37A(3) in their defence.

12 No assistance is obtained from the language of Section 37A(3) itself, which is silent as to the party who must prove, or disprove, its ingredients. And appellate courts appear to have expressed different views. Compare P T Garuda Indonesia Limited v Grellman (1992) 35 FCR 515 at 527-528 and Wentworth v Rogers [2004] NSWCA 430 at [62]-[68]. But I am of course bound by the Court of Appeal of this court, whose clear view of the law is set out in Wentworth v Rogers. In any event, in this particular case, sufficient evidence emerged on which I was able to base my findings and nothing turned on the issue of onus. I allowed the second and third defendants to advance their case based on Section 37A(3) without requiring a formal pleading to that effect. There was no prejudice to the plaintiff.

13 The party seeking to have the benefit of Section 37A(3) must positively prove the necessary statutory ingredients. It is not necessary for the plaintiff to plead that the section has not been satisfied or to seek to negative the statutory ingredients of the section in its case in chief. Of course, once the defendant embarks on a course of attempting to prove that he or she was a purchaser in good faith with no notice of the intent to defraud creditors, the plaintiff may respond with whatever forensic resources are available to it to rebut the allegation.

Notice to the Second Defendant

14 On 1 June 2010, the first defendant was arrested and charged with offences involving the third defendant. Later that month he left the matrimonial home. On 1 July 2010, he was charged with offences against the plaintiff. In about August or September, the second defendant learned for the first time that there was a second victim of her husband's conduct. She had the following conversation with the first defendant:

Greg: "This person is just looking for money. I never did anything to her."

Me: "So you never assaulted this girl?"

Greg: "No. I never did anything to her."

15 The second defendant's evidence was that she had no notice of any claim or impending liability to the plaintiff because "all the way along my ex-husband claimed that he was not guilty" and "right from the beginning until about December he told me that. That was when he pleaded guilty. Until then he said he hadn't done a thing and the reason he pleaded guilty was to spare his family trial". She added that only in July this year did she realise that the plaintiff had a valid claim against her ex-husband.

16 I am unable to accept this evidence. In fact, as I have mentioned, the first defendant pleaded guilty on 7 October 2011. The offences to which he pleaded guilty involved the sexual abuse of both victims - the third defendant and the plaintiff. The second defendant knew that. And she was aware that a victim of such conduct could commence proceedings seeking damages from the perpetrator. In the conversation that took place between the first and second defendants in August or September 2010, the first defendant specifically told his wife that the plaintiff was "looking for money".

17 By February 2012, events were catching up with the first and second defendants and it must have been obvious that steps needed to be taken to secure the second defendant's continuing ownership and occupation of the Concord property. On 24 February the first defendant filed an application in the Family Court of Australia for consent orders relating to the division of matrimonial property. On 28 February he agreed to the orders proposed by the third defendant in the civil damages proceedings commenced by her, which I set out in paragraph [5] above. On 1 March those agreed orders were filed. On the same day, the first defendant was served with the plaintiff's statement of claim in her District Court damages proceedings against him. Also on the same day, his sentencing hearing commenced and was adjourned to 23 March.

18 The Family Court did not immediately approve the first defendant's application for consent orders and he was required to provide an explanatory affidavit. His affidavit sworn on 14 March contained the following statements:

17 As a result of my conduct in 1993, I have been formally indicted in respect of that conduct in relation to offences under Section 66A, 66O(ii), 61M(i), 61J(i) of the Crimes Act. I have pleaded guilty to a number of the allegations and am due to have my sentence finalised in the District Court on 23 March 2012.

...

19 My conduct prior to my marriage with Margaret was responsible for the breakdown of the marriage.

20 The prospect of the imminent criminal charges resulted in my immediate separation from Margaret as well as my resignation from the police force at 60 years of age.

...

22 I do not want Margaret or Margaret's children to forego the use or benefit of the Concord property as a result of my conduct and forced suspension without pay and my subsequent resignation from the police force.

(emphasis added)

19 The only known likelihood of the second defendant or her children having to "forego the use or benefit of the Concord property" was if the property had to be sold to satisfy the first defendant's liability for claims made against him. The only known claims were those of the plaintiff and the third defendant. The second defendant read the affidavit and counter-signed a letter from her solicitor stating that she agreed that the contents of the affidavit were true and correct. The statement in paragraph [22] of the affidavit may be understandable as a human response, but it is damning in the circumstances of this case. It is not only probative of the first defendant's intent to defraud creditors, specifically the plaintiff, but the second defendant's knowledge of and agreement with it are sufficient to indicate her notice of that intention.

20 When the first defendant's half interest in the Concord property was transferred to the second defendant on 21 March 2012, pursuant to the consent orders that were finally approved in the Family Court, he was facing a lengthy term of imprisonment and had no other assets. I have no doubt that both first and second defendants knew two things - first, that there was an impending liability to the plaintiff; and second, that the inevitable result of the consent orders in the Family Court would be to leave no assets to satisfy that liability: Freeman v Pope (1870) 5 Ch App 538 at 541 (Lord Hatherley LC); Noakes v Harvy Holmes & Son [1979] FCA 40; 26 ALR 297 at 303 (Brennan J, Deane and Fisher JJ concurring).

Impending Liability

21 The plaintiff had no judgment against the first defendant at 21 March 2012 but the expression "creditors" in Section 37A is not limited in its scope and meaning to persons to whom debts are currently owing. It includes future creditors. And an "impending liability" to a future creditor is sufficient: Barton v Deputy Commissioner of Taxation [1974] HCA 20; (1974) 131 CLR 370 at 374 (Stephen J, with whom Menzies and Gibbs JJ agreed); Hardie v Hanson [1960] HCA 8; (1960) 105 CLR 451 at 456 (Dixon CJ). Barton was decided in the context of bankruptcy legislation but its reasoning was applied to Section 37A of the Conveyancing Act in Green v Schneller [2002] NSWSC 671 at [87]-[88] (Barrett J). See also P T Garuda Indonesia Limited v Grellman (1992) 35 FCR 515 at 525-526 (Wilcox, Gummow and von Doussa JJ) and Langdon v Gruber [2001] NSWSC 276 at [58]-[60] (Austin J).

22 Silvera v Savic (1999) 46 NSWLR 124 is a case involving similar facts to this case. In November 1995 consent orders relating to the transfer of property were made under the De Facto Relationships Act 1984. Some months earlier the transferor had been served with a statement of claim by a victim of his sexual assault. She did not obtain judgment until November 2006. Hodgson CJ in Eq upheld her claim for avoidance of the transfer pursuant to Section 37A notwithstanding that at the time of the disputed transfer the transferor had no more than an impending liability for her claim.

No Notice to the Third Defendant

23 The position of the third defendant is different to that of the second defendant. The essence of her evidence was as follows:

At no time during the process of negotiating the consent orders did I speak with Mr U or the Plaintiff. My intention at the time of settlement was to finalise the Damages Proceedings so as to give me some compensation for the hurt inflicted by Mr U. The effect of the settlement on any other potential claims never crossed my mind. Rather, I recall now being pre-occupied with the thought of giving evidence against Mr U and my own ongoing medical battles.

24 The position of all three women is and was tragic, but in the case of the third defendant, she carried the additional overload of horrendous health issues that were contributed to by the first defendant's assaults. These included anorexia nervosa and endocarditis which culminated recently in open heart surgery. Despite her difficulties, she managed to obtain a Bachelor of Law degree from the University of New England and was admitted as a solicitor of this court on 2 December 2010. In the witness box she was direct, responsive, and I thought, honest, in the evidence that she gave.

25 She had only cursory knowledge of the plaintiff. They met at court and spoke only in passing. She knew that the plaintiff was another victim of the first defendant's abuse but they were not friends. She did not tell the plaintiff that she had brought civil damages proceedings against the first defendant. Nor did she discuss her damages claim with the plaintiff. Nor did the plaintiff discuss with her any claim that she intended to pursue, other than possibly a compensation claim against the government pursuant to a statutory scheme for victims of crime. The plaintiff said herself, when asked about any such conversation that "there was nothing in relation to suing him privately or anything like that. It was just about victim services."

26 I accept the third defendant's evidence that it did not cross her mind that the effect of the orders made in settlement of her civil damages claim, would leave the plaintiff with nothing. She was asked "What did you think would happen to her?" To that question, she responded convincingly, and to my mind persuasively, "I did not think". I regard that as a frank and honest statement. She later said that she was not aware that there would be no other property against which another claimant could seek to enforce a claim for damages. I accept that evidence as well.

27 The third defendant's position is understandable given her natural focus on her own position, her concern about her impending commitment to provide a victim impact statement at the forthcoming sentencing hearing and her ongoing health issues. Nor is the case against her advanced by the terms of the consent orders that she signed on 29 February 2012. Although the notation set out in [4] of those orders states that a copy of the Family Court consent orders is annexed and initialled, what was annexed was only a draft. The final orders, admittedly not materially different, were not approved and made until 21 March 2012.

28 The third defendant had no reason to understand the detail of the proposed Family Court consent orders or their inter-relationship with the orders to which she agreed in her civil damages proceedings or the combined effect of both sets of orders on the plaintiff. Her solicitor may have thought it prudent to include reference to the proposed Family Court orders in the orders in which a settlement of her civil claim was recorded. And I am satisfied that he gave her some explanation of them. But as far as the third defendant was concerned, she only needed to know that her claim was being satisfied from the net proceeds of sale of the Gerroa property. That was her focus.

Conclusion & Orders

29 For the reasons explained in paragraph [14]-[20], I have reached the view that in the case of the second defendant, she took the transfer of the first defendant's half interest in the Concord property with notice of his intent to defraud creditors. Her defence based on Section 37A(3) has not been established. The plaintiff is therefore entitled to an order pursuant to Section 37A(1) avoiding the transfer.

30 For the reasons explained in paragraphs [23]-[28], I have reached the view that the third defendant was a purchaser in good faith not having, at the time of the alienation, notice of the first defendant's intent to defraud creditors within the meaning of Section 37A(3). The plaintiff's claim against the third defendant must therefore fail.

31 I propose to suspend for 90 days the operation of the order proposed in paragraph [29] above. I am doing so out of consideration for the position of the second defendant and her children. This will enable the second defendant, if she is able and willing to do so, to raise sufficient funds on the security of the Concord property, or otherwise, to meet the first defendant's liability for the judgment in favour of the plaintiff for $107,500 plus costs. If that can be achieved, it will not be necessary to avoid the transfer to her of the first defendant's half interest in the Concord property.

32 The plaintiff should pay the third defendant's costs. The second defendant should pay the plaintiff's costs, excluding her liability to the third defendant. I stand over the proceedings before me on 22 February 2013.

Decision last updated: 23 November 2012